The recent attention given in the financial press to the advent of evening trading would have one thinking that evening trading has never been tried before in this country. That is hardly the case. Financial markets have always been innovative, so perhaps it is no surprise that evening trading has been tried before. But who would guess that the first stock exchange dedicated to evening trading existed 135 years ago, during the Civil War?

The Evening Exchange, along with two other daytime exchanges, had its origin in the financial straitjacket of the U.S. Treasury at the beginning of the war. Finding it difficult to borrow enough gold to finance the war, the federal government began, in early 1862, to pay some of its bills with currency ("greenbacks"). When the Union lost a battle, the price of gold in greenbacks went up. If the Union won a battle, the price went down. Telegraph lines from battle fronts to New York made the market's response time short; speculators were said to know battle results before President Lincoln.

The price of gold swung wildly in the summer of 1862. The New York Stock Exchange (not the official name until January 29, 1863) acted "patriotically" by first banning time sales (settlements deferred up to 60 days), and then banning cash sales. The total ban lasted less than a month, but the combined moves were enough to end the see-saw volatility. Soon after gold trading resumed at the NYSE, the federal government began taxing gold sales with settlements longer than three days to discourage speculation. Active gold traders at the NYSE got the message: if they wanted to speculate in gold, they had to do business elsewhere. On October 12, 1863, Samuel S. Gilpin formally opened a "Gold Room" within his Merchants' Exchange at 26 Exchange Place. By October 1864, shoddy practices and expanded trading volume led a group of traders to leave Gilpin's to form the New York Gold Exchange.

Samuel Gilpin's Gold Room

Speculation during the Civil War was not limited to gold. A bull market in stocks began in 1862 that extended into 1864, but the auction style of trading employed at the NYSE was incapable of handling the increased trading volume. In addition, it was run like an exclusive club, meaning that a large number of brokers and traders could never hope to become members due to heritage or lack of influential friends. Some of these brokers tried forming their own exchanges.

The first new exchange to emerge after the start of the Civil War was the Public Stock Board. Under the leadership of George Henriques, the Public Stock Board opened in late 1862, when it began holding two afternoon sessions. The exchange was located in the basement of 23 William Street, hence it acquired the nickname "the Coal Hole." As with Gilpin's, a group of disgruntled broker/traders left in March 1864 to form the Open Board of Stock Brokers.

Unfortunately for compulsive traders, the Gold Room and the Open Board kept only regular business hours, and even the curb market was only open until about 6:00 p.m. But a lack of daylight apparently did not stop the most determined traders. They simply moved uptown. The New York Times first mentioned evening trading at the Fifth Avenue Hotel in November 1863, although other sources say it started in 1862. Traders probably began massing there in May 1862, about the time that the bull markets in gold and stocks began in earnest.

R.H. Gallaher's Evening Exchange in the Fifth Avenue Hotel.

Perhaps because of pressure from the hotel management to stop trading on the main floor, a broker named Robert H. Gallaher rented the basement (which the New York Herald later likened to the Black Hole of Calcutta, suggesting massive overcrowding and suffocating conditions) and charged twenty-five cents admission to his new Evening Exchange. Trading began at 5:00 p.m. and went until midnight. Gold coin was traded, as were all the major stocks listed at the NYSE and the Open Board. Stocks were called for bidding one at a time, in the same way as at the NYSE. Gallaher was successful enough that the Times was reporting transactions on a daily basis beginning January 19, 1864. Business grew so fast that in March he moved the exchange to a larger facility on Broadway near the corner of 23rd Street. There are two conflicting views of this location. According to the Herald, it was a "barn-room," but in his book The Big Board, Robert Sobel states that by day it was the Republican party headquarters. Gallaher claimed that the location could accommodate 1500 people. This move was temporary, as the Evening Exchange moved to 164 Fifth Avenue in June, and then back to Broadway and 23rd Street in November. Gallaher finally erected a building at Fifth Avenue and 24th Street, which was completed by April 1865.

Gallaher was preparing to organize his Evening Exchange into a joint-stock company when the combined efforts of the NYSE, the Open Board and the Gold Room forced him out of business by denying their own members access to the Evening Exchange. The primary catalyst for the action against the Evening Exchange was the failure of the private banking firm of Ketchum, Son & Co. on August 15.

Edward B. Ketchum (the son and junior partner), like many others, was caught up in the speculative fever of the times. Barely 25 years old at the time, his greed and ambition may be forgivable.
Unfortunately, bull markets always end, and the bull market in both shares and gold peaked in the summer of 1864. From the peak, prices dribbled downward through the rest of 1864. Then it became ugly.

From the last day of February 1865 to the day before Appomattox, the price of gold dropped by about 25 percent and the stock market by 15 percent before prices rebounded. As a result, Edward was rumored to have lost roughly $10 million, giving back whatever he had made earlier and then some. To cover his losses, Edward forged $1.5 million in gold checks and embezzled $2.5 million in unregistered coupon bonds from his company. Ketchum cleverly used the forged checks as collateral for loans, rather than trying to make payments with them directly. In that way, his forgeries went undetected for over a month.

Morris Ketchum (his father) was a respected name in banking, so people had no reason to think that Edward was not trustworthy. When two of the forged gold checks were finally discovered the morning of August 14, Edward filled a tote bag with $60,000 of his company's cash and fled. He remained free for 10 days without ever leaving Manhattan, in spite of the Importers' and Traders' National Bank offering a $5,000 reward for his capture.

The extent of the fraud wasn't immediately apparent. Trading at the daytime exchanges on the day that the forgeries were detected was uneventful. However, trading at the Evening Exchange was frenetic. Share prices dropped by about two to three percent from the close of the NYSE and the Open Board to the close of the Evening Exchange (gold held steady). Approximate volume for the day at the three stock exchanges was as follows: NYSE, 8,862 shares and no gold; Open Board, 13,300 shares and no gold; Evening Exchange, 58,616 shares and $60,000 in gold. Volume may have been much higher; the Times and the World included footnotes from the Evening Exchange saying "impossible to put down all the sales."

The Gold Room at William and Beaver Streets, 1864.

Those who were unable to sell until Tuesday morning must have been infuriated. More than just money, however, was the fact that Morris and Edward were members of the NYSE. The World suggested that Ketchum's firm had been dumping shares at the Evening Exchange Monday night, in order to raise cash before it publicly announced its closure. Righteous indignation at the NYSE would have run high if it were believed that Morris Ketchum had raised cash in such a manner.

The Herald then began a series of articles blasting the Evening Exchange. These editorials are quite amusing from today's perspective. The Herald blamed the Evening Exchange for the break-up of families, the ruining of ordinary folk ("tailors and barbers, and grocers and barkeepers, and a host of vagabonds"), raising the crime rate in New York, and for being a "disgrace to Wall Street, to the city of New York and to American civilization." The lambasting culminated in two lengthier editorials on August 25 and 26, in which the Herald also sung praises of the daytime exchanges.

On August 24, the NYSE and the Open Board passed resolutions to the effect that any members caught trading through the Evening Exchange would be expelled immediately. The Gold Exchange passed an identical resolution the following day.

Whether the Herald was indeed suffering moral outrage, or this was simply a tool of the daytime exchanges is moot. It stopped reporting Evening Exchange trades four months before the panic, indicating a somewhat longer-term antipathy toward the exchange. The Times, the Evening Post, the World and the Commercial and Financial Chronicle were without an obvious bias. If anything, they tended to blame former Treasury Secretary Salmon P. Chase for his role in creating a speculative bubble.

The Evening Post sent a reporter down to the Evening Exchange on August 24. He saw no members of either stock board, and only a "very few" curb brokers. Business was "nominal" and attendance "slim." The Times statement on August 28 regarding the demise of the Evening Exchange was without emotion: "The Evening Exchange has been abolished, and the crowd on the sidewalks on Broad Street early in the morning are to be relieved by an early session of the Open Board of Brokers - the new arrangement to begin this morning." Clearly, the Open Board was not above admitting the "vagabonds" from the Evening Exchange.

The great weakness of both Gilpin's and Gallaher's exchanges was that they were both sole proprietorships, in contrast to the other exchanges, which were associations of brokers. Those same personal associations between brokers and traders gradually brought the three big daytime exchanges closer together. The NYSE and the Open Board merged on May 8, 1869, one result being that the twice-daily auctions were gradually replaced with the present system. On April 30, 1877, the Gold Room closed permanently, and the NYSE immediately took over its business. Gilpin was left with his merchants' exchange and reading room. Gallaher was vice president of the Public Petroleum Stock Exchange for a time, and then penned a financial newsletter. Edward Ketchum was released from Sing Sing in November 1869, having shaved eight months off his sentence for good behavior.

Are there parallels between then and now? The Evening Exchange was obviously the product of a speculative bubble. Are the billion-share days, extended trading hours and new electronic exchanges of today indicating another bubble? Only one thing is certain: investors should be skeptical of the word "new" in relation to financial markets.